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Pursuant to a congressional request, GAO discussed the limits on its audit authority over the Federal Reserve System (FRS), focusing on the provisions of H.R. 28 that remove all restrictions on its authority to examine Federal Reserve activities. GAO noted that: (1) under H.R. 28, it would have full authority to examine FRS activities; (2) FRS financial audits are extremely important because of the nature and volume of FRS daily transactions; (3) although the FRS financial examination program has been subject to some scrutiny by public accounting firms, it is not equivalent to a full independent audit; (4) removing audit restrictions would allow GAO to assess the quality of FRS financial controls and auditing and make recommendations for improvements; (5) access restrictions limit GAO ability to conduct performance audits, since it cannot analyze data on actual transactions; and (6) safeguards that prohibit GAO from disclosing confidential information will not necessarily jeopardize FRS independence.

Matter for Congressional Consideration

Status: Closed - Implemented

Comments: In July 2010 Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act. Section 1102 of the act provided GAO with the authority to audit the Federal Reserve Board or Banks' operations and procedures with respect to a credit facility or certain open market transactions. Section 1102 provided a number of safeguards to protect the identity of individuals or details of the transactions. In particular, GAO is to issue a report no later than 90 days after the audit is completed. Moreover, GAO is not to disclose to any person or entity, including Congress, the names or identifying details of specific participants in any of the transactions, amounts borrowed or transferred, or any details about the assets or collateral involved. Any reports issued should have the names and details redacted until such information has been publicly released by the Federal Reserve.

Matter: If Congress decides to remove the existing restrictions on GAO audit authority, it should include certain safeguards in the legislation. These safeguards, which are similar to those that already exist under GAO present authority, should: (1) prohibit GAO from disclosing the identity of foreign central banks or governments; (2) prohibit GAO from disclosing confidential documents and requires safekeeping of confidential information; and (3) specify delays in GAO access to certain types of confidential information.